Apple threatens to shut iTunes if artist royalties increase


— 2:03 PM on October 2, 2008

The iTunes Store has made Apple the top music retailer in the United States, and it has likely played no small part in promoting iPod and iPhone sales. Now, BBC News says Apple has threatened to close the business over a disagreement on artist royalties.

According to BBC News, the Copyright Royalty Board—a government body that administers copyright licenses—will rule today whether artists should see their royalties jump from 9 to 15 cents per song. One of three parties would have to absorb that hike: Apple itself, consumers, or record labels. Apple has fought tooth and nail to keep its uniform 99-cent pricing for copy-protected songs, and Apple iTunes VP Eddy Cue clearly told the Board 18 months ago that Apple doesn't want to reduce its margins:

"If iTS (iTunes Store) were forced to absorb any increase in the mechanical royalty rates, the result would be to significantly increase the likelihood of the store operating at a financial loss - which is no alternative at all.

"Apple has repeatedly made clear that it is in this business to make money, and would most likely not continue to operate iTS if it were no longer possible to do so profitably," said Mr Cue.

Rather than pressure record labels to pay artists more, BBC News says Apple has opposed the royalty increase altogether. For the record (no pun intended), music labels siphon 70% of Apple's revenue from digital music sales, and they're in charge of paying artists.

Why is this information surfacing now instead of last year, when Cue submitted his testimony? BBC News quotes CNet's Greg Sandoval as saying, "If word gets out that music publishers are trying to stick it to consumers, and Apple is fighting to keep prices down on their behalf, well, there's liable to be public backlash against the labels. . . . If this thing follows the normal course, there would be calls for boycotts, protests and so on."

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